GSK-linked investigators stand trial in China in closely watched case

SHANGHAI (Reuters) - A British investigator and his American wife will stand trial in Shanghai on Friday in a case that is seen as key to a bribery investigation against GlaxoSmithKline Plc (GSK.L) and has unnerved the growing community of corporate sleuths in China.

The logo of GlaxoSmithKline (GSK) is seen on its office building in Shanghai July 12, 2013. REUTERS/Aly Song

Peter Humphrey and his colleague and wife Yu Yingzeng, who were detained over a year ago following work they did for the British pharmaceutical giant, face charges of illegally obtaining private information on Chinese citizens, for which they can receive a maximum sentence of up to three years imprisonment.

Their arrest sent shivers through the country’s risk consultancy community, whose members are much in demand by multinationals and foreign investors for information on potential partners or firms in China, where such data is not easily available.

“In the past, people were almost encouraged to turn a blind eye to where the due diligence companies or investigators were getting their information,” said Pooja Nair, a Los Angeles-based associate at law firm Foley & Lardner.

“(This case) makes it clear that in order to get information you’re taking a huge risk in China.”

The court case, which also coincides with a growing number of Chinese anti-trust probes that have seen authorities raid offices of Western firms, highlights the obstacles foreign companies face in navigating China’s murky business world.

Foreign investors in China now have to adhere to more rigorous anti-corruption laws in the West even as information about their prospective Chinese investments becomes harder to obtain.

ChinaWhys, the risk consultancy the couple ran, was part of the corporate investigations industry in China which has seen a surge in demand amid more stringent enforcement of the U.S. Foreign Corrupt Practices Act and an increase in the number of Chinese firms involved in overseas deals.

The couple’s arrest last year coincided with a Chinese probe into allegations that GSK staff had funneled hundreds of millions of pounds through travel agencies to bribe local doctors and health officials to boost sales and raise prices.

While Chinese authorities have not openly connected the arrests of the Humphreys to the GSK probe, Peter Humphrey said in a note last year when he was already in detention that he felt “cheated” by GSK, adding that the drugmaker had not shared the full details of the bribery allegations.

A GSK spokesman declined to comment on the trial. The drug maker said in July that the issues relating to its China business were “very difficult and complicated.”

Peter Humphrey, who has apologized on state television for breaking any Chinese law, is expected to plead guilty. He worked for Reuters as a journalist in the 1980s and 1990s.

China has in recent years moved to tighten its privacy laws. In 2009, it amended its criminal code to ban the transfer, sale or gathering of Chinese citizens’ information by government firms and companies involved in telecoms, transportation, education and medical treatment.

“Even before the investigation there had already been a shift in the industry to focus entirely on public information, to make everything legitimate...I think the Humphrey investigation pushed the transition a little faster,” said a Shanghai-based investigator at a foreign-owned research firm.